Hollande's Failures May Lead to an Emboldened, Eurosceptic Germany

Hollande's Failures May Lead to an Emboldened, Eurosceptic Germany

In most cases, the humiliation of French socialist President Francois Hollande in Sunday’s final round of national local elections could mean nothing but joy for the eurosceptics among Britain’s Conservatives.

The euro-enthusiast Hollande has been battered by Marine LePen’s anti-EU National Front and defeated by Nicholas Sarkozy’s centre-right UMP. 

Hollande’s ruling socialist party has lost control of dozens of major towns. His prime minister has been forced to resign. 

Opinion polls show he and his socialists are in line for an even greater humiliation at the end of May in the elections to the European Parliament.

What’s not to like?

Just this. Every time a French president loses power, the power of the German Chancellor increases. The anti-socialist political manoeuvring that Sunday’s results will bring in French national politics should not distract the attention of British eurosceptics from this wider picture.

According to David Marsh, chairman of the Monetary and Financial Institutions Forum, a London-based think-tank: “Through a combination of open power-play and behind-the-scenes diplomatic and monetary positioning, Germany is moving into a position under which, as condition for stabilising the currency bloc, it can exert much greater control over the euro area as a whole.”

“The French president, for 50 years the classic counterweight to German influence in Europe, has lost power and prestige in a highly visible way and at a difficult time for Europe.”

“A prolonged growth slowdown has brought resolution of some of the euro area’s crassest economic imbalances – but this has been accompanied by progressive indications of incipient deflation that risks worsening further the position of indebted nations.”

Wolfgang Munchau, European commentator for the Financial Times, recently explained the risks of such deflation this way: “While the good news is that outright deflation remains improbable, the bad news is that you do not need outright deflation to get into big trouble.” 

“A permanent cut in inflation expectations to current levels is all it takes. If eurozone inflation levels were to settle at one percent, the odds of debt sustainability for several eurozone member states would change from small to zero. Inflation lowers the real value of debt. Deflation does the opposite.”

So, with France now powerless to stop her, here is what Chancellor Merkel will do next. Claiming she must act to stabilise the euro bloc, she will place Jens Weidmann, Bundesbank president and her own former advisor, as head of the European Central Bank (ECB). His job will be to drive Merkel-designed reforms – consolidating power over the currency union in German hands – across the still-fragile eurozone. 

The job in Frankfurt will soon become vacant. It looks likely the ECB president Mario Draghi will leave to become president of Italy once 88-year old Giorgio Napolitano steps down next year. 

Once that happens, German control of the eurozone, and German dominance of the EU, will be nearly complete.

Except: Merkel’s triumph is happening just as Germany’s intellectual elite are falling out of love with the European Project. 

Since the beginning of the euro crisis there has been a consensus in Germany – embodied by Angela Merkel – that ‘more Europe’ is the answer. While all across the EU, eurosceptic parties have increased their percentages in opinion polls, Germany has remained one of the countries in which Eurosceptic parties do not reach double-digits.

That could now change. 

According to Hans Kundnani, research director of the European Council on Foreign Relations, writing in a paper just published by Chatham House:

“…the political dynamic in Germany is much the same as elsewhere in Europe – according to Eurobarometer [the European Commission’s own polling operation], there has been a 32-point drop in support for the EU since 2007 – and eurosceptic voices have gradually been getting louder.

“Although Merkel was re-elected to a third term as Chancellor last September — an apparent endorsement of her step-by-step approach to the euro crisis — Germany’s new eurosceptic party, the Alternative fur Deutschland (AfD), took nearly five per cent of the vote and thus almost won seats in the Bundestag, an impressive result for a party that was only formed in February last year.

“The AfD — a direct challenge to Merkel’s declaration that “there is no alternative” to her approach — is expected to do even better at the European Parliament elections. Recent polls suggest it will win six to seven per cent of the vote. In any case, because the German constitutional court has abolished the three per cent threshold, it will sit in the European Parliament after the elections.

“The strategy of Merkel’s Christian Democrats has been to stigmatise the AfD as a far-Right party – even though it is plainly quite different from the neo-Nazi parties that have threatened to enter the Bundestag in the past.

“One interesting question is whether, after the European elections, the AfD will join the British Conservatives in the European Conservatives and Reformists group. Christian Democrats would regard this as a ‘declaration of war’, as a leading German Christian Democrat politician put it to me.

“That would in turn complicate Cameron’s attempt to renegotiate Britain’s relationship with the EU for which he needs Merkel’s support.

“Even more worrying for pro-Europeans in Germany than the emergence of the AfD is the increasing euroscepticism of Germany’s intellectual elite. European integration was perhaps even more of an elite project in Germany than elsewhere in Europe; there has never been a referendum on any step in European integration such as the introduction of the euro or the Lisbon Treaty.

“But since the crisis there has been the beginning of a backlash. Some of Germany’s leading intellectuals on both the Left and Right are now increasingly uncomfortable with Merkel’s European policy. In a country in which public intellectuals are still hugely influential, this could in the end have an even greater impact than the AfD.

“What is driving German Euroscepticism above all is fear of the emergence of a “transfer union” in which the prudent countries – with German at the forefront – cover the debts of the imprudent.”

Thus whereas in many of the member states of the EU, the pro-European elites are under attack from eurosceptics who say they speak for the people, “in Germany the elites themselves may be changing their minds.”